Far East Hospitality Trust - CIMB Research 2016-04-28: 1QFY16: RevPAR stabilises

FAR EAST HOSPITALITY TRUST Q5T.SI

Far East Hospitality Trust 1QFY16: RevPAR stabilises

Though 1Q16 DPU of 1.08Scts (+1% yoy) formed 24% of our FY16F, we consider results to be slightly ahead of our expectations. We expect stronger 2Q & 3Q.
Hotel RevPAR was flat yoy at S$141, halting a slide the trust experienced in 2015.
Serviced residences’ RevPAU dropped 9% yoy to S$188 due to lower corporate travel budgets.

The main takeaway from 1Q16 results was that hotel RevPAR has stabilized. However, due to lower corporate travel budgets, serviced residences (13.5% of 1Q16 revenue) remained sluggish.
Revenue from excluded commercial premises decreased marginally by 2.1% yoy, with a decrease in average occupancy.
Overall, 1Q16 gross revenue stabilised at S$27.4m.
NPI and distributable income improved 1% yoy to S$24.7m and S$19.4m, respectively.

Hotel RevPAR was flat yoy at S$141, halting a slide FEHT experienced in 2015.
Occupancy was 5.7% pts higher yoy at 88% but ADR was 6.4% lower at S$160.
STB estimated that RevPAR across all hotel segments grew by 1.9% for Jan-Feb 2016, but we expect Mar data to slow down a little. The recovery of Indonesian arrivals helped the trust’s Orchard properties.
Village Hotel Changi was affected by lower corporate travel budgets and the Orchard Parade hotel was hampered somewhat by an ongoing AEI.

Hotels saw a greater contribution from leisure (up 61% of hotel revenue in 1Q16 vs. 56.4% in 1Q15), as corporate demand remained soft.
Revenue from Europe increased yoy, forming 22.5% of hotel revenue (1Q15: 20.3%).
AEI for Orchard Parade hotel is expected to be completed by 2Q16 and there are no other major AEIs planned for 2016.

Serviced residences RevPAU dropped 9% yoy to S$188 due to lower corporate travel budgets. The average occupancy for serviced residences was 1.5% pts lower yoy at 84.3% and ADR was 7.1% yoy lower at S$223.
Regency House was affected by an ongoing AEI (completed by 2Q16), while Village Residence Clarke Quay suffered from a larger inventory of rooms.

We now expect FY16 RevPAR, and resulting DPU, to be flat yoy (we previously expected a 2% yoy decline). However, with the new supply of 2,700 rooms coming onstream in 2016, coupled with the quality of arrivals and shortening of length of stay, we do not expect a material improvement in RevPAR.
With seasonality, we expect better qoq and flat yoy performances for 2Q16.

What the above could imply for share price performance is that there could be a onestep re-rating to factor in the bottoming of RevPAR (which could already have occurred). However, a sustained re-rating is unlikely, in our view.
Hence, we maintain our Hold recommendation on the stock with a higher DDM-based target price of S$0.65.
FEHT offers a 6.9% FY16F dividend yield vs. its historical average of 5.9%.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-28

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Up 0.61